Are the '80s Back?

By John Greenwald

Watch a giant takeover brawl unfold before your eyes! Marvel at the clash of colossal egos! Gasp at the gyrating stock prices! Not since the 1980s has Wall Street so unabashedly savored a fight as it did the one that broke out last week for filmmaker Paramount Communications. With a bid from Viacom Inc. valued at $7.5 billion already on the table, QVC shopping-network chairman Barry Diller unveiled a staggering $9.5 billion counteroffer. Paramount stockholders could almost be heard sighing at the thought of their potential profits. In a counterassault with personal overtones, Viacom chairman Sumner Redstone fired back with an antitrust suit accusing one of Diller's chief backers, John Malone, the head of cable-TV powerhouse Tele-Communications Inc. (TCI), of monopolizing the cable industry.

The advent of such an '80s-style fight had Wall Streeters in a spasm of nostalgia for a decade in which it seemed that deals had to be mean if they were going to be big. Propelled by Diller's bid and constant rumors of new suitors, Paramount stock rose 7 3/8 a share, to close at 75 7/8 last week. Arbitragers, who purchase the stock of takeover targets in the hope that deals will be completed, welcomed the battle and became voracious buyers. Fee- hunting investment bankers scrambled to draw other bidders into the fray and grab some of the action. "Our phone has been ringing off the wall," says H. Wayne Huizenga, chairman of Blockbuster Entertainment, the nation's largest video-store operator. "Basically, the investment-banking firms not involved in this deal want to be part of it, so they're all calling us with potential partners."

For now, Huizenga says, he is content to watch. But even those on the sidelines could not help drawing comparisons with the decade of frantic buy-' em-and-bust-'em-up struggles (like the $25 billion 1988 fight for RJR Nabisco) that burdened corporations with excessive debt, ignited newspaper headlines and enriched everyone from corporate raiders to takeover lawyers. "The only criteria were who won or lost and how the companies were split up," says Felix Rohatyn, a senior partner at investment banker Lazard Freres, Paramount's adviser. In that rapacious era, "we wouldn't look at a deal under $1 billion," says James Stewart, a former front-page editor of the Wall Street Journal and author of the best seller Den of Thieves. "That was for spot news."

So far, however, Wall Street in the '90s has lived up to the decade's reputation for grownup -- some call it downright uninspired -- behavior. Most '90s deals have been friendly strategic mergers in which the buyers use stock instead of debt and the partners exchange handshakes instead of lawsuits. Typical was last week's $4 billion agreement for financial conglomerate Primerica to acquire the 73% that it does not already own of Travelers, the insurance company. So too were AT&T's $12.6 billion deal for McCaw Cellular in August and the $6 billion merger agreement between drug firms Merck and Medco last July. "These deals are boring," says a disgruntled veteran of the '80s. "Today, you actually have to sell the stuff on the fundamentals" -- how well companies fit together.

This transformation has thinned the ranks of the so-called Masters of the Universe, who made their living advising the warring sides in takeover battles. About half of the nearly 900 Wall Streeters who worked on mergers and acquisitions have fled the field since the late 1980s. Those who remain frequently play only minor roles in friendly consolidations like bank mergers. "You don't need an investment banker for those deals," says Sharon Kalin, president of the arbitrage firm Athene-Coronado Management. "They hire an investment banker to say the price is fair, and they pay him $50,000, but that's the end of the discussion."

The decline of hostile deals has hit the arbitrage industry hard too. Many firms were driven out by the 1990 collapse of the proposed leveraged buyout of United Airlines, which left arbitragers with more than $150 million in overpriced stock and no buyers. As more and more firms have quit the business, the amount of capital in arbitrage war chests has dwindled from as much as $20 billion in the '80s to as little as $3 billion today.

Yet merger activity has shown signs of a rebound. After cleaning up much of the debt they took on in the '80s, many corporations have set out in search of what they describe as strategic alliances. U.S. companies have struck $142 billion worth of merger deals so far this year, almost $15 billion more than the total for all of 1992 and the first uptick in five years. At Lehman Brothers, mergers and acquisitions co-head Jeffrey Sechrest says he is gradually increasing a staff that had 100 members in 1988 before being cut back. Lehman now has 30 people working exclusively on mergers and another 30 who do it part time.

At the moment, Wall Street can revel again in a battle that is likely to be protracted and fierce. Takeover watchers doubted last week that Viacom's 67- page antitrust suit would force Diller to drop out. The action claimed that QVC's offer for Paramount would be "the latest step in a systematic and broad-ranging conspiracy to monopolize the American cable industry" by TCI's Malone. (TCI controls Liberty Media, one of Diller's principal partners in QVC.) The suit asks a federal judge in Manhattan to order QVC to drop its offer for Paramount. One antitrust expert called the action "an arrow pointed at Malone's heart, but it's moving pretty slowly," since QVC could complete the deal while the case is being litigated. Another attorney dismissed the suit as "a cloud of smoke."

For all its '80s echoes, the Paramount fight still bears many of the earmarks of a '90s affair. Paramount would make a tight strategic fit with either Viacom or QVC, and both bidders want to buy the company primarily with stock. That has caused the value of both firms' offers to rise or fall with each blip in the price of their shares. Viacom's bid, originally valued at $8.2 billion, or $69.14 for each Paramount share, was down to $67.50 a share at the end of last week after drops in the price of Viacom stock. At the same time, the rising price of QVC stock pushed the value of its offer from $80 a share to $84.24 a share. "Viacom's bid doesn't even come close," says Jessica Reif, who watches the media industry for Oppenheimer & Co.

However the Paramount fight plays out, Wall Street dealmakers don't expect a re-enactment of '80s-style takeover frenzy anytime soon. Debt remains a dirty word in many executive suites, and intense foreign competition has put pressure on companies to merge in ways that make sense for their long-term abilities to expand. "Nobody does a deal for what they used to call financial reasons any longer," says arbitrager Kalin. "The merger has got to fit in with your company." While the Paramount battle is happily reminiscent of the '80s, she adds, it will probably prove to be just one of a kind.

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With reporting by Sam Allis/Boston, John F. Dickerson and Jane Van Tassel/New York and Adam Zagorin/Washington